João Nuno Silva
Financial Markets
José Macedo
Financial Markets
On January 31st of 2020, the United Kingdom finalized its withdrawal from the European Union, an event commonly referred to as Brexit, which has had profound implications for the British Economy.
The primary concern surrounding Brexit was its impact on the UK’s trade relations with the rest of Europe, considering that after leaving the EU, the United Kingdom was forced to negotiate new trade agreements with both the EU and other countries. By the end of 2020, the UK and the EU closed a post-Brexit trade deal that ensured tariff-free and quota-free access to each other’s markets. This agreement helped minimize disruptions, nevertheless, trade between the two states has experienced some fundamental challenges, particularly due to an increase in bureaucracy and border checks. Consequently, there has been a decline in both imports and exports, with a particularly significant effect on exports from the UK to the EU, which affected various sectors, such as manufacturing and agriculture.
Boris Johnson signing the Brexit Trade Deal in December 2020
The Brexit also presented an opportunity for the UK to explore new global trade partnerships. The government pursued trade agreements with countries outside the EU, such as Japan, Australia, and New Zealand. These agreements have the potential to open new markets and enhance trade diversification. However, it is important to note that establishing comprehensive trade deals takes time, and their impact on the economy may not be fully established in the short term.
The prolonged negotiations and unsure outcomes that came as a consequence of this event led some companies to delay or reconsider investment plans in the UK, leading to a plague of uncertainty that impacted investment decisions and business confidence. However, since the trade deal was finalized, there has been a gradual improvement in investment sentiment. The UK’s government has also implemented policies to attract foreign investment and support domestic businesses, particularly in sectors such as technology, innovation, and green energy. These efforts are aimed at bolstering economic growth and creating a favourable business environment.
From another perspective, the impact of Brexit on the labour market has been multifaceted. On the one hand, the UK has implemented stricter immigration control, ending the free movement of labour between the EU and the UK, which, predictably, has resulted in a decline in the number of workers from EU-affiliated countries coming to the UK. Industries heavily reliant on workers, such as agriculture, hospitality, and healthcare, have thus faced labour shortages.
On the other hand, Brexit has led to the government’s focus on upskilling and investing in domestic talent to fill the gaps left by reduced immigration. The long-term consequences of these changes on employment and wages are still unfolding as we speak.
Brexit, in addition, has posed another type of challenge for this sector, as the UK lost its passporting rights, which allowed financial institutions to operate freely across the EU. As a result, some companies relocated parts of their operations to EU financial centres like Paris and Frankfurt. Nonetheless, the city of London remains a significant financial hub, and the UK’s government is working to enhance its competitiveness by developing attractive regulatory frameworks and captivating global investment.
Anti-Brexit protest by UK’s citizens
The evolution of the British economy since Brexit has been complex and nuanced. The trade agreement with the EU has provided some stability – yet, the UK’s trade relations have been profoundly reshaped, and several challenges remain. The diversification of trade partnerships presents both opportunities and uncertainties for the future, and while investment sentiment has gradually improved, the initial impact on this sector was overwhelmingly negative and still shows effects on the economy to this day. The government’s initiatives to attract investment and support businesses will surely be critical for the UK’s new economic growth. The labour market has experienced shifts due to several fundamental changes in immigration policy, necessitating the upskilling of domestic workers. The financial services sector has also undergone adjustments, with the city of London having to adapt to its new reality.